IN THE UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission alleges as follows:
1. This matter involves securities fraud and registration violations resulting from a "prime bank" fraud that has raised nearly $100 million from investors. The fraudulent scheme was developed chiefly by defendants James Edwards ("J. Edwards") and David Edwards ("D. Edwards"), father and son, respectively, and operated through defendants Resource Development International, LLC ("RDI"), Jade Asset Management, Ltd ("Jade"), and Sound Financial Services, Inc. ("SFSI"), all entities controlled by the Edwards. Defendants Gerald Jay Stock ("Stock"), Kevin Lynds ("Lynds"), Intercoastal Group, LLC ("Intercoastal I"), Intercoastal Group II, LLC ("Intercoastal II"), Blackwolf Holdings, LLC ("Blackwolf") and William Whelan ("Whelan") each played a significant role in marketing the prime bank program on behalf of the Edwards. (Unless otherwise noted, the "prime bank" program will be referred to throughout this Complaint as the "RDI" program).
2. The RDI program has its genesis in the Dennel Finance Limited ("Dennel") "prime bank" scheme. The Dennel program, which was the subject of a previous emergency action by the Commission, was adjudged by the Court to be a prime bank fraud operating as a Ponzi scheme. [Securities and Exchange Commission v. Benjamin Franklin Cook, et al., 3:99CV0571-X, USDC, ND/TX (Dallas Division)] ("SEC v. Cook"). When the Commission shut down the Dennel program in 1999, the Edwards developed the RDI scheme to replace it.
3. From January 1999 through the present, the RDI scheme has raised approximately $98 million from more than 1300 investors nationwide. In soliciting funds for the RDI prime bank scheme, defendants have targeted persons seeking to invest retirement funds.
4. In the course of offering and selling the unregistered prime bank securities, defendants have engaged in numerous misrepresentations and omissions of material fact concerning, among other things, the use and safety of investor funds. Defendants represent, for example, that investor funds will be used in Europe to trade financial instruments with "top 25" or "top 50" banks in a program sponsored by the Federal Reserve and global organizations. This trading activity, investors have been told, will provide them with annual returns of 48 to 120 percent with complete safety of principal. In reality, the prime bank program marketed to investors does not exist and investor funds have been misappropriated for personal and unauthorized uses, including making Ponzi payments. Moreover, while RDI has ceased making payments of any kind to its investors, tens of millions of dollars collected by the defendants simply cannot be unaccounted for.
5. In the course of marketing the RDI trading program, defendants D. Edwards, J. Edwards, Stock, Lynds and Whelan have acted as broker-dealers even though they were not registered with the Commission as broker-dealers.
6. Relief defendants Pacific International Limited Partnership ("PILP"), International Education Research Corporation ("IERC"), Galaxy Asset Management, Inc. ("Galaxy"), and David Cluff, individually and d/b/a Rivera Trust 410 ("Cluff") have received RDI investor funds or control property derived from investor funds.
7. By engaging in such conduct, as described in this Complaint, defendant D. Edwards, J. Edwards, RDI, SFSI, Intercoastal I, Intercoastal II, Lynds, Stock, Blackwolf and Whelan, directly or indirectly, singly or in concert, have engaged, and unless enjoin and restrained, will again engage in transactions acts, practices, and courses of business that constitute violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder.
8. By engaging in such conduct, as described in this Complaint, defendants D. Edwards, J. Edwards, Lynds, Stock, and Whelan, directly or indirectly, singly or in concert, have engaged, and unless enjoin and restrained, will again engage in transactions acts, practices, and courses of business that constitute violations of 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)].
JURISDICTION AND VENUE
9. The investments offered and sold by the defendants are "securities" under Section 2(1) of the Securities Act [15 U.S.C. § 77b] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c].
10. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], to preliminarily and permanently enjoin defendants D. Edwards, J. Edwards, RDI, SFSI, Intercoastal I, Intercoastal II, Lynds, Stock, Blackwolf and Whelan from future violations of the federal securities laws.
11. This Court has jurisdiction over this action, and venue is proper, pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)], and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
12. Defendants, directly or indirectly, made use of the means or instruments of transportation and communication, and the means or instrumentalities of interstate commerce, or of the mails, in connection with the transactions, acts, practices and courses of business alleged herein. Certain of the transactions, acts, practices and courses of business alleged herein took place in the Northern District of Texas.
13. Resource Development International, LLC, with its principal place of business in Tacoma, was incorporated in the state of Nevada as a limited liability company on January 7, 1999. RDI is owned and controlled by James and David Edwards. Although the LLC dissolved in August 2000, RDI has continued to function as an assumed name for the Edwards.
14. David E. Edwards, age 44, is a resident of University Place, Washington. D. Edwards acts as President of RDI, signing investor contracts and checks, and generating most investor correspondence. In connection with the SEC v. Cook case, D. Edwards asserted his Fifth Amendment privilege when questioned about his role in the RDI investment and his control over RDI, SFSI, and Jade.
15. James E. Edwards, age 70, is a resident of Tacoma, Washington. The father of D. Edwards, J. Edwards owns and/or controls, together with his son, RDI, SFSI, Jade, and IERC. J. Edwards has worked out of the Tacoma RDI offices, responding to investor questions about the investment and the delay in payments, and generally engaging in lulling activities.
16. Jade Asset Management, Ltd. is an entity incorporated in Nevis, West Indies, and is controlled by J. Edwards and D. Edwards. The Edwards created jade in early 1999 for the purpose of opening offshore accounts to receive Dennel funds. During the RDI scheme, Jade has entered into "prime bank" contracts directly with some investors. In addition, at least $46 million in investor funds were deposited in the Jade accounts in Nevis.
17. Sound Financial Services, Inc ("SFSI"), an entity incorporated in the state of Nevada on December 30, 1998, is another entity owned and controlled by the Edwards. Although SFSI's corporate status was dissolved in July 2000, it continued to function thereafter as an assumed name for the Edwards.
18. Gerald J. Stock, a Wisconsin resident, is a principal fund-raiser and "facilitator" for RDI. Stock had been a licensed representative through with A.G. Edwards for many years. Stock left his employment with A.G. Edwards (File No. 8-13580) in July 1999, and then was licensed for approximately one month by Cambridge Investments, Inc. (File No. 8-48740) and has not since been formally associated with any broker-dealer.
19. Kevin Lynds, a resident of Wichita Falls, Texas, acted as Stock's partner in raising funds for RDI. From July 20, 1992 through September 3, 1996, Lynds was licensed as a registered broker associated with A.G. Edwards. Subsequently, Lynds was licensed through Donnelly & Co., Inc. (File No. 8-47222) from September 15, 1996 until July 1, 1999. Since that time, he has not been affiliated with a registered broker-dealer.
20. Intercoastal Group, LLC, a Nevada limited liability corporation, was formed by Stock and Lynds in October 1999, in connection with their prime bank program activities. The general manager of the Intercoastal I was Blackwolf and Stock and Lynds were managing members.
21. Intercoastal Group II, LLC was originally incorporated by Stock and Lynds as a Delaware limited liability corporation in January 2000, and subsequently in Nevada in January 2001. Again, the general manager of Intercoastal II was Blackwolf and Stock and Lynds were its managing members.
22. Blackwolf Holdings, LLC was formed in Nevada in October 1999 by Lynds and Stock, who are both managing partners. Blackwolf used the same registered agent in Nevada as did RDI and the other Edwards-related entities. Blackwolf served as the managing member of the Intercoastal entities and was entitled to management fee for its "services."
23. William Whelan, a resident of Visalia, California, is a licensed insurance agent and a principal fund-raiser and "facilitator" for David Edwards and RDI. On December 22, 1999, the California Department of Corporations issued a Desist and Refrain order to Whelan for selling unregistered securities, and doing so without being registered as a broker-dealer. Despite this order, Whelan is continuing to promote and sell the unregistered securities for David Edwards.
24. Pacific International Limited Partnership was a Nevada limited partnership formed on January 12, 1998. SFSI is listed as the general partner of PILP. PILP aggregated millions of dollars of investor funds and placed them with Dennel, receiving in return hundreds of thousand of dollars in commissions each month. After the Commission ended the Dennel fraud, PILP received large amounts of money from RDI.
25. International Education Research Corporation was incorporated in Nevada in May 1998 and remains in good standing. Corporate records designate D. Edwards as the President, Secretary and Treasurer of IERC. IERC, which shares the same address as RDI, was used by the Edwards to divert investor funds for personal and business expenses.
26. Galaxy Asset Management, Inc., an entity which lists its address as a P.O. Box in the Grand Cayman Islands, British West Indies, is another entity used by the Edwards to conceal their diversion of investor funds from the RDI program.
27. David Cluff ("Cluff"), a resident of Phoenix, AZ, was a Dennel investor and cousin of one of the defendants in the SEC v. Cook matter. Jade transferred RDI funds to an account established by Cluff in the name of Rivera Bench Trust 410.
STATEMENT OF FACTS AND ALLEGATIONS
RELEVANT TO ALL CAUSES OF ACTION
The Role of the Edwards and PILP in the Dennel Fraud
28. PILP, acting through J. Edwards and D. Edwards, was among the most prolific brokers in the fraudulent Dennel scheme. Using contracts and correspondence nearly identical to those used by Dennel itself, PILP entered into agreements with investors, pooled their money and invested the pooled funds in the Dennel program.
29. PILP paid its investors with funds provided by Dennel. While PILP received a "return"-in reality, a Ponzi payment-of 6 to 7 percent per month from Dennel, it generally paid PILP investors a return of only 2 percent per month. Accordingly, the Edwards and PILP reaped a net commission of 4 to 5 percent per month on the funds it collected for Dennel.
30. The Commission's emergency action in SEC v. Cook shut off the flow of funds that the Edwards and PILP depended on to repay PILP investors. At the time that the Commission halted the Dennel fraud, PILP owed its investors more than $7 million.
Fraudulent Offer and Sale of the RDI Prime Bank Program
31. In early 1999, the Edwards created the structure for a nationwide prime bank fraud to replace the Dennel scheme. The Edwards created two domestic entities, RDI and SFSI, as chief components of the program. In addition, the Edwards established Jade, an offshore entity incorporated in Nevis, and opened an offshore account in the name of Jade at the International Bank of Nevis.
32. RDI employed a large number of sales people or "facilitators" throughout the United States to market the RDI prime bank program. When the Dennel program was shut down, many former Dennel facilitators, including defendant Whelan, simply "changed brands" and began to offer and sell the RDI program. The Commission is informed and believes that RDI paid its facilitators commissions of at least 4 percent per month of the total principal they collected from investors.
33. RDI and its facilitators targeted the elderly and person seeking to invest retirement funds ("IRA"). RDI facilitated the investment of IRA funds in the fraudulent prime bank scheme by entering into an agreement with a company that acted as the custodian for self-directed IRAs. Thereafter, RDI supplied investors with documents to effectuate the placement or transfer of their IRA savings into the RDI program.
34. Most RDI investors completed a Private Placement Application and entered into written agreements with RDI and SFSI, both signed by David Edwards as Vice President of SFSI, the managing member of RDI. Investors received a 12-month note also signed by David Edwards. Some investors, however, entered into similar agreements directly with Jade.
35. The Private Placement Application states that the investor's funds will be used in an "international private placement investment." The Joint Venture Agreement states that the parties agree "to abide by the customary International Rules of Non-Circumvention and Non-Disclosure as are established by the International Chamber of Commerce" and further states that the investor further agrees to "maintain complete confidentiality" concerning RDI's affiliates, clients, sources, contacts and agreements. The "Consulting" agreement with SFSI also stresses confidentiality, including extensive language in which investors acknowledge the confidentiality of all information provided by the company. Specifically, investors promise "that under no circumstances will they divulge any information pertaining to investment opportunities brought to their attention by the company." RDI also required investors to sign a pledge that their "funds originate from sources of good, clean and clear United States Dollars and are of non-criminal origin."
36. RDI and the Edwards supplied false information directly to RDI investors and to RDI facilitators, which they, in turn, disseminated to investors and potential investors. Investors were supplied with false and misleading information concerning, among other things, the use of their funds, the risk pertaining to the investment and the returns to be expected from the program.
37. RDI investors were promised that they would earn enormous returns at no risk to their investment principal. RDI contracts promised investors annual returns of 48 percent per year to 120 percent per year. Investors were told that their funds were pooled with those of other investors and used by a trader to conduct numerous trades with top 25 or top 50 European banks in financial instruments such as standby letters of credit, treasuries, prime bank guarantees, and medium-term notes. Investor principal, according to the Edwards and other RDI representatives, was deposited in a foreign bank account and remained secure because it only had to be "scanned" to facilitate its use by the trader.
38. Investors were further told that the RDI program was conducted with the knowledge and sponsorship of the Federal Reserve and international organizations, including the International Monetary Fund and United Nations. Indeed, the purpose of these high-yield programs, according to the Edwards and RDI facilitators, was to provide funds to support humanitarian and infrastructure projects abroad; a substantial portion of the "returns" from trading activity were allocated to this altruistic purpose.
39. All of the essential representations made to investors about the RDI program were false. In fact, the program described to investors does not exist. Indeed, the description provided to investors is the prototypical language used to solicit funds for non-existent prime bank frauds. Moreover, as set forth more fully below, investor funds were not used to trade financial instruments with European banks. Rather, investor funds have been misappropriated and dispensed for personal and unauthorized business uses. Funds collected from RDI investors have been used to pay the Edwards' debt to PILP investors and funds represented to RDI investors as "returns" from the promised trading program were, in fact, Ponzi payments in that later investors' funds are being used to pay a return to earlier investors in the RDI scheme.
40. The scope of the RDI fraud has become enormous. From January 1999 through the present, the RDI program has raised in excess of $98 million from a minimum of 1366 investors in at least 34 different states.
41. RDI made sporadic "interest" payments to its investors until approximately October 2000. Investors received account statements accompanied by a letter and a check, both signed by D. Edwards. In October 2000, RDI announced that it was unilaterally reducing investor returns for a period of 90 days. Thereafter, RDI continued to pay investors principally at the reduced rate until February 2001. Investors have received no further payments from RDI. As set forth in detail below, however, investors have continued through the present to receive communications from the Edwards and other defendants containing an array of fraudulent excuses for the delays and promising the imminent payment of both principal and profits.
Role of Other Defendants in the Offer and Sale of RDI Investments
I. Stock, Lynds, Blackwolf, and Intercoastal I and II
42. Stock, working out of Manitowoc, Wisconsin, and Lynds, working out of Wichita Falls, Texas, forged a multi-state partnership, under the name of Blackwolf, with the objective of marketing fraudulent high yield investments, including the RDI program. Stock and Lynds, both former registered representatives at A.G. Edwards, established and controlled defendants Intercoastal I and Intercoastal II to facilitate their fraudulent conduct and designated Blackwolf as managing member of the Intercoastal entities.
43. Stock and Lynds raised in excess of $2 million from investors and placed it with the Edwards. Stock and Lynds, through Blackwolf, participated in the RDI scheme through two separate procedures. First, these defendants induced investors to enter directly into investment contracts with RDI. In addition, these defendants induced multiple investors to enter into investment contracts with the Intercoastal entities. The evidence demonstrates, however, that Intercoastal investor funds were aggregated and placed with the Edwards.
44. In promoting both the Intercoastal and RDI programs, Stock and Lynds utilized the classic "prime bank" jargon. They described the investments as involving highly secretive and confidential programs in which a highly selective group of "intermediary traders" bought and sold "medium term notes" through "top world banks," primarily in Europe. Investors were told that these programs were established and monitored by the Federal Reserve and involved the World Bank and International Monetary Fund. Stock promised investors in Intercoastal that their investment principal would always be secure because it would merely sit in an account under Stock's control and be used only as collateral. Investors were further told that, after the trader was compensated, 50 percent of the remaining profit was reserved for "humanitarian" causes. Investors were told that they could expect returns in excess of 10 percent per month from the Intercoastal programs and 4 percent per month from their direct investments in RDI.
45. Clients who invested with Stock and Lynds had conservative investment objective which they communicated to the defendants. In reliance on the promises made by Stock and Lynds that their principal was guaranteed to be safe and accessible and the representations that they would be receiving monthly returns, these investors transferred their money, including retirement funds, from safe and stable investments into the fraudulent Intercoastal and RDI programs.
46. As with RDI, Intercoastal investors received sporadic payments, often in amounts less than promised, until January or February 2001. Since that time, investors have not received profit payments or return of principal.
47. Whelan, a licensed insurance agent in Visalia, California, received more than $100,000 as a facilitator for the Dennel program. Eventually, Whelan transferred his sales efforts to the RDI program. By his own admission, Whelan is an "agent" of the Edwards responsible for selling the RDI program to 20-25 investors and placing a total of $1.2 million with the fraudulent scheme.
48. Whelan admits that he became aware in March 1999 that the Commission had shut down the Dennel program. Moreover, in December of 1999, the California Department of Corporations issued a Desist and Refrain Order to Whelan, ordering him to stop selling unregistered securities as an unlicensed broker-dealer. Nonetheless, Whelan agreed to sell the unregistered RDI investments, in spite of their similarity to the Dennel fraud, and has continued serving the Edwards through at least the latter part of 2001.
49. In his deposition in the SEC v. Cook, conducted on August 22, 2000, Whelan blatantly lied to the Commission and Receiver concerning his knowledge and involvement in RDI program. Even though he had been selling the RDI investment since at least November 1999, Whelan denied that he had any knowledge of David Edwards, Jim Edwards, Resource Development International or Jade Asset Management. Additionally, Whelan denied that, apart from Dennel, he had ever been involved in, or received a commission for offering or selling, any other similar high-yield program. Further, Whelan denied having ever seen the very RDI offering documents that he was already using in his offer and sale of the RDI program.
50. Whelan's services to the Edwards and RDI have continued up to the present time. He has been an essential part of the Edwards' lulling activities and their efforts to maintain the allegiance of investors.
Use and Misuse of Investor Funds
51. Funds collected on behalf of RDI were not used to conduct European trading programs, as represented by RDI and its affiliates. Rather, investor funds have been used to make Ponzi payments and have been transferred to other Edwards-controlled entities and associates for the personal benefit of the Edwards and others.
52. After collecting funds from investors, RDI transferred most investor funds to a Jade account at the International Bank of Nevis. Funds were then repatriated as needed to pay investor returns and for other purposes.
53. The Commission is informed and believes that RDI investor funds were used to retire the $7 million debt PILP owed to its investors at the time the Commission turned off the Dennel spigot. RDI transferred at least $810,000 to PILP and also made payments directly to PILP investors.
54. The Jade account was used to make unauthorized transfers to other accounts maintained or used by the Edwards. Jade transferred at least $3,565,919 to defendant SFSI. During the period from January 1999 through June 2000 alone, relief defendant IERC, another Edwards-controlled entity, received nearly $900,000 from the Jade account.
56. Relief defendant Cluff established a bank account in the name of Rivera Bench Trust 410. Subsequently, Jade transferred $499,973.20 into the Rivera account. The Commission is informed and believes that this transfer and the transfer to IERC were made, in part, to pay legal bills of Ben Cook in connection with the SEC v. Cook matter.
Lulling Activities and Other Recent Events
Excuses and Assurances
57. From Spring 2001 until the present, defendants have continued to defraud RDI investors with a series of false excuses for their failure to make payments to investors, while disingenuously reporting on a regular basis that payments of principal and profits are "just around the corner." RDI and its representatives have continually told investors that returns from the RDI program, wired from Europe, are in a bank in the United States, but are "frozen" as a result of actions of the by the bank and various agencies of the federal government, particularly the Federal Reserve. After September 11, 2002, defendants shamelessly and falsely blamed further delays on the terrorist tragedy in New York City and new anti-terrorist regulations purportedly promulgated as a result.
58. Nonetheless, defendants' communications also continually lull investors with the expectation that payments are imminent. Investors are constantly given hope that the release of frozen funds will be achieved shortly or that payments will be forthcoming from alternative programs.
New Programs and Continued Sales Efforts
59. In addition to evidence of continuing lulling activities, defendants are continuing to operate the fraudulent RDI program and other programs. Beginning in August 2001, RDI provided its investors with revised contracts and requested that they execute and return the new agreements. These contracts continue to offer RDI investors returns of "a maximum of 4% [per month], but on a best efforts basis."
60. Defendants have admitted that they are attempting to pay RDI investors from the proceeds of similar ongoing programs. Still more significantly, in recent communications with investors, defendants have stated their intent to begin soliciting additional funds from RDI's existing client base.
CAUSES OF ACTION
AS TO ALL DEFENDANTS
Violation of Section 10(b) of the Exchange Act and Rule 10-5
61. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this Complaint and incorporated herein by reference as if set forth verbatim.
64. Defendants made the above-referenced misrepresentations and omissions knowingly or grossly recklessly disregarding the truth.
65. By reason of the foregoing, defendants have violated and, unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
AS TO ALL DEFENDANTS
Violations of Section 17(a) of the Securities Act
66. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this Complaint and incorporated herein by reference as if set forth verbatim.
67. Defendants, directly or indirectly, singly, in concert with others, in the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, practices or courses of business which operate or would operate as a fraud or deceit.
68. As part of and in furtherance of this scheme, defendants, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence, and oral presentations, which contained untrue statements of material fact and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those statements and omissions set forth in paragraph 1 through 59 above.
69. Defendants made the above-referenced misrepresentations and omissions knowingly or grossly recklessly disregarding the truth.
70. By reason of the foregoing, defendants have violated, and unless enjoined, will continue to violate Sections 17(a) of the Securities Act [15 U.S.C. 77q(a)].
AS TO ALL DEFENDANTS
Violations of Section 5(a) and 5(c) of the Securities Act
71. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this Complaint and incorporated herein by reference as if set forth verbatim.
72. Defendants, directly or indirectly, singly and in concert with others, have been offering to sell, selling and delivering after sale, certain securities, and have been, directly and indirectly: (a) making use of the means and instruments of transportation and communication in interstate commerce and of the mails to sell securities, through the use of written contracts, offering documents and otherwise; (b) carrying and causing to be carried through the mails and in interstate commerce by the means and instruments of transportation, such securities for the purpose of sale and for delivery after sale; and (c) making use of the means or instruments of transportation and communication in interstate commerce and of the mails to offer to sell such securities.
73. As describe in paragraphs 1 through 59, the purported RDI prime bank trading program was offered and sold to the public through a general solicitation of investors. No registration statements have been filed with the Commission or are otherwise in effect with respect to these securities.
74. By reason of the foregoing, defendants have violated and, unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. 77e(a) and 77e(c)].
AS TO D. EDWARDS, J. EDWARDS, STOCK, LYNDS AND WHELAN
Violations Of Section 15(a)(1) Of The Exchange Act
75. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this Complaint and incorporated herein by reference as if set forth verbatim.
76. At the times alleged in this Complaint, defendants have been in the business of effecting transactions in securities for the accounts of others.
77. Defendants made use of the mails and of the means and instrumentalities of interstate commerce to effect transactions in and to induce or attempt to induce the purchase of securities.
78. At the times alleged in this Complaint, none of the defendants were registered with the Commission as a broker or dealer, as required by section 15(b) of the Exchange Act [15 U.S.C. §78o(b)].
79. By reason of the foregoing, defendants have violated and, unless enjoined, will continue to violate section 15(a)(1) of the Exchange Act [15 U.S.C. §78o(a)(1)].
Claim Against the Relief Defendants
As Custodians of Investor Funds
80. Plaintiff Commission repeats and realleges paragraphs 1 through 60 of this Complaint and incorporated herein by reference as if set forth verbatim.
81. As set forth in paragraphs 50 through 55 of this Complaint, relief defendants have received funds and property from one or more of the defendants, which are the proceeds, or are traceable to the proceeds, of the unlawful activities of defendants, as alleged in paragraphs 1 through 79, above.
82. Relief Defendants have obtained the funds and property alleged above as part of and in furtherance of the securities violations alleged in paragraphs 1 through 79 and under the circumstances in which it is not just, equitable or conscionable for them to retain the funds and property. As a consequence, relief defendants have been unjustly enriched.
WHEREFORE, Plaintiff respectfully requests that this Court:
Temporarily, preliminarily and permanently enjoin defendants from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.
Temporarily, preliminarily and permanently enjoin defendants D. Edwards, J. Edwards, Stock, Lynds, and Whelan from violating Section 15(a)(1) of the Exchange Act.
Enter an Order instanter freezing the assets of defendants and directing that all financial or depository institutions comply with the Court's Order. Furthermore, order instanter that defendants repatriate any funds held at any bank or other financial institution not subject to the jurisdiction of the Court, and that they direct the deposit of such funds in identified accounts in the United States, pending conclusion of this matter.
Enter an Order instanter freezing the assets of relief defendants, which they received, directly or indirectly, from the activities described in the Commission's Complaint. Furthermore, order instanter that these relief defendants repatriate any funds which they received, directly or indirectly, from the activities described in the Commission's Complaint held at any bank or other financial institution not subject to the jurisdiction of the Court, and that they direct the deposit of such funds in identified accounts in the United States, pending conclusion of this matter.
Order instanter that defendants and relief defendants shall file with the Court and serve upon Plaintiff Commission and the Court, within 10 days of the issuance of this order or three days prior to a hearing on the Commission's motion for a preliminary injunction, whichever comes first, an accounting, under oath, detailing all of their assets and all funds or other assets received from investors and from one another.
Order instanter that defendants and relief defendants be restrained and enjoined from destroying, removing, mutilating, altering, concealing or disposing of, in any manner, any of their books and records or documents relating to the matters set forth in the Complaint, or the books and records and such documents of any entities under their control, until further order of the Court.
Order instanter the appointment of a receiver pendente lite for defendants and relief defendants, for the benefit of investors, to marshal, conserve, protect and hold funds and assets obtained by the defendants and their agents, co-conspirators and others involved in this scheme, wherever such assets may be found, or, with the approval of the Court, dispose of any wasting asset in accordance with the application and proposed order provided herewith.
Order that the parties may commence discovery immediately, and that notice periods be shortened to permit the parties to require production of documents, or the deposition of any party or party-representative, on 72 hours notice.
Order the defendants to disgorge an amount equal to the funds and benefits they obtained illegally as a result of the violations alleged herein, plus prejudgment interest on that amount, and order the relief defendants to disgorge an amount equal to the illegally obtained investors funds they received from the Defendants, plus prejudgment interest on that amount.
Order civil penalties against the Defendants pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], for the violations alleged herein.
Order instanter that defendants surrender their passports to the Clerk of this Court, to hold until further order of this Court.
Order such further relief as this Court may deem just and proper.
For the Commission, by its attorneys:
DATED: March 25, 2002